Most retirement income is subject to Oregon tax when received by an Oregon resident. This is true even if you were a nonresident when you earned the income. However, if you have federal pension income, you may subtract some or all of it from Oregon income.
Eligibility Rules
The subtraction amount is based on the number of months of federal service or points earned for retirement before and after October 1, 1991:
- If all of your months of federal service occurred or points were earned before October 1, 1991, subtract 100 percent of the taxable federal pension income you reported on your federal return.
- If you have no months of service or points earned before October 1, 1991, you can’t subtract any federal pension.
- If your service occurred or points were earned both before and after October 1, 1991, you will subtract a percentage of the taxable federal pension income you reported on your federal return.
Eligible Income
The subtraction may apply to qualifying retirement benefits received from federal retirement systems, including:
- Civil Service Retirement System (CSRS) benefits.
- Federal Employees Retirement System (FERS) benefits.
- Military retired pay.
- Qualifying federal Thrift Savings Plan (TSP) distributions (only withdrawals after retirement may be included)
Calculation Formula:
Subtraction Percentage = Months of Creditable Federal Service Before October 1, 1991
÷ Total Months of Creditable Federal Service
The resulting percentage is applied to the qualifying federal pension income to determine the allowable Oregon subtraction.
Example Calculation
A taxpayer has:
100 months of creditable federal service before October 1, 1991.
400 total months of creditable federal service.
Calculation:
100 ÷ 400 = 25%
The taxpayer may subtract 25% of qualifying federal pension income from Oregon taxable income.
Other Oregon Retirement Tax Treatment
Important Notes
- The federal pension subtraction is based on creditable federal service before October 1, 1991, not simply the date employment ended.
- Only qualifying federal retirement benefits are eligible.
- Taxpayers should retain retirement statements and federal employment records supporting the calculation.
- The allowable subtraction must be calculated according to the current Oregon Department of Revenue instructions for the applicable tax year.
Source:
2025 Publication OR-17, Oregon Individual Income Tax
Disclaimer: Always verify details with the official Federal or State Department of Revenue Forms and Instructions. Tax rules may vary by year and individual circumstances. For complex situations, consult a CPA or tax attorney.